British telecom major Vodafone has sought a reduction in interest rate on deferred spectrum payment and also expressed concerns over risks associated with a possible cut in mobile termination charges (MTC).

"We hope the IMG (Inter-Ministerial Group) will recommend a reduction in the interest rates for deferred spectrum payments to 6.25 per cent in line with the improved macro- economic trends and an increase in the period of payment for spectrum," Vodafone Group Chief Executive Vittorio Colao said in a letter written to Union Telecom Minister Manoj Sinha.

Read the entire letter below:

Firstly, we hope that the Hon’ble Inter Ministerial Group (IMG) that is meeting to finalize the steps required to revitalize and correct the structural issues of the industry, will take cognizance of the above submissions. We hope that the Hon’ble IMG will recommend a reduction in the interest rates for deferred spectrum payments to 6.25% in line with the improved macro-economic trends and an increase in the period of payment for spectrum.

Secondly, on Mobile Termination charges (MTC), we are seriously alarmed to see reports that the Regulator is considering a reduction in MTC at a time when the industry is facing such immense hardships. There are only a few operators, like us, who have invested heavily in both rural and urban areas and are proud to have brought connectivity to every Indian’s hand. Today 97% of population is covered by telecom.

Any move to further reduce MTC risks destroying the very companies that have invested to build this industry.

Reuters

The existing rate of 14 paisa is already below cost. This damages the economic case for connecting rural areas because traffic is largely from urban to rural, with little call origination revenue in rural areas. Even at the present MTC rates, 15-20% of our sites run at a loss. Any reduction in MTC risks large scale site shut-down of already unprofitable sites in rural India and which would greatly diminish the population coverage of mobile telephony.

There is an urgent need to ensure recognition of the work done principle and cost based MTC to ensure that financial investments in rural networks in particular that remain viable.

The success of reaching telecom to rural and poor citizens was the bold move to Calling Party Pays (CPP) in 2003. It is relevant to note that nowhere in the world do Bill and Keep (BAK) and CPP regime co-exist as is being proposed by new operator. In BAK regimes, the consumers pay for incoming calls, which is unrealistic for Indian consumers.

There is a view being propagated by the new entrant that as a 4G-only operator, it has a cost advantage in the region of 70% compared to the established 2G/3G/4G operators. There is no evidence – either Indian or international to support such a claim. If this was indeed true, there would be a number of 4G-only operators emerging around the world, which is not the case. It may be noted that the costs of the new entrant are higher than any other operator, whether in terms of employees (approximately double Vodafone India when including outsourced employees) or infrastructure (significant sole tenancy approach vs the tower sharing approach adopted by other operators).

It is also clear from the TRAI industry workshop on MTC, that RJio has assumed continued growth of an implausible level of paid traffic on its network. However, the present traffic levels are a result of extreme promotional activity and generated by incurring huge losses. RJio is also assuming that it can recover its costs many years into the future. However, continued under-pricing of services leads to a rapidly increasing cost per subscriber, recovery of which will require higher ARPUs in future, which is unfeasible/ unrealistic. It is undesirable for a critical core industry like telecom to be regulated based on the ambition of a new operator with no history of financial sustenance.

We request your urgent intervention to safeguard the future of the telecom sector and ensure that there should be no further reduction in MTC as it would destabilize the sector, defeat government rural coverage objectives and cause huge inconvenience to citizens, in particular, in rural India.

We reiterate our long term commitment to the Government Vision of Digital India and request your urgent intervention and consideration of our above submissions.

With inputs from PTI

(Disclosure: Firstpost is part of Network18 Media & Investment Limited which is owned by Reliance Industries Limited.)